Case Analysis on

Mcdonald's: Serving Fast Food around the World

Ray Kroc opened the first McDonald’s restaurant in 1995. He offered a limited menu of
high quality, moderately-priced food served fast in spotless surroundings. McDonald’s QSC&V
(quality, service, cleanliness, and value) was a hit. The chain expanded into every state in the
nation. By 1983 it had more than 6000 restaurants in the United States and by 1995 alone, the
company built 2400 restaurants, and by 2001 it had more than 29000 restaurants in 121
countries.

In 1967, McDonald’s opened its first restaurant outside the United States, in Canada.
Since then, international growth has been accelerating. In 1995, the “Big Six” countries that
provide about 80% of the international operating income are: Canada, Japan, Germany,
Australia, France, and England. Yet fast food has barely touched many cultures. The
opportunities for expanding the market are great, as 99% of the world populations are not yet
McDonald’s customers. For example, in China, with a population of 1.2 billion people, there
were only 62 McDonald’s restaurants in 1995. McDonald’s vision is to be the major player in
food services around the world.

In Europe, McDonald’s maintains a small percentage of restaurant sales but commands

a large share of the fast-food market. It took the company 14 years of planning before it opened
a restaurant in Moscow in 1990. But the planning paid off. After the opening, people were
standing in line up to 2 hours for a hamburger. It has been said that McDonald’s restaurant in
Moscow attracts more visitors – on an average 27000 daily – than Lenin’s mausoleum (about
9000 people) which used to be the place to see. The Beijing opening in 1992 attracted some
40,000 people to the largest (28,000 square-foot) McDonald’s restaurant in china at a location
where some 800,000 pedestrians pass by every day. Food is prepared in accordance with local
laws. For example, the menus in Arab countries comply with Islamic food preparation laws. In
1995, McDonald’s opened its first kosher restaurant in Jerusalem where it does not serve dairy
product. The taste for fast food, American style, is growing more rapidly abroad than at home.
McDonald’s international sales have been increasing by a large percentage every year. Every
day, more than 33 million people eat at McDonald’s around the world with 18 million of them in
the United States.

The prices vary considerably around the world ranging from $4.90 in Switzerland to 1.23
in the Philippines for the Big Mac that costs in the United States $2.90. The Economist
magazine even devised a Big Mac index to estimate whether a currency is over or undervalued.
For example, the $1.26 Chinese Mac translates into an Implied Purchasing Power Parity of
$3.59. The inference is that the Chinese currency is undervalued. Here are other price
comparisons for the $2.90 U.S. Big Mac: Chile $2.18, Euro area $3.28 (Weighted average of
member countries), Hong Kong $1.54, Japan $2.33, Mexico $2.08, Peru $2.57, Singapore
$1.92 and Thailand $1.45.

Its traditional menu has been surprisingly successful. People with diverse dining habits
have adopted burgers and fries wholeheartedly. Before McDonald’s introduced the Japanese to
French fries, potatoes were used in Japan only to make starch. The Germans thought
hamburgers were people from the city of Hamburg. Now, McDonald’s also serves chicken,
sausage, and salads. One of the items, a very different product, is pizza. In Norway,
McDonald’s serves grilled salmon sandwich, in the Philippines pasta in a sauce with further bits,
and in Uruguay the hamburger is served with a poached egg. Any new venture is risky and can
be either a very profitable addition or a costly experiment.
 Despite the global operation, McDonald’s stays in close contact with its customers who
want good taste, fast and friendly service, clean surrounding, and quality. To attain quality, so
called Quality Assurance Centers are located in US, Europe and Asia. In addition, training plays
an important part in serving the customers. Besides day-to-day coaching, Hamburger
Universities in the US, Germany, England, Japan, and Australia, teach the skills in 22
languages with the aim of providing 100% customer satisfaction. It is interesting that
McDonald’s was one of the first restaurants in Europe to welcome families with children. Not
only are children welcomed, but in many restaurants they are also entertained with crayons and
paper, a play land, and the clown Ronald McDonald, who can speak twenty languages.

With the generally aging population, McDonald’s takes aim at the adult market. With
heavy advertising (it has been said that McDonald’s will spend $200 million to promote the new
burger) the company introduced Arch Deluxe on a potato-flower bun with lettuce, onion,
ketchup, tomato slices, American cheese, grainy mustard and mayo sauce. Although
McDonald’s considers the over- 50 adult burger a great success, a survey conducted five weeks
after it’s introduced, showed mixed results.

McDonald’s golden arches promise the same basic menu and QSC&V in every
restaurant. Its products, handling and cooking procedures and kitchen layouts are standardized
and strictly controlled. McDonald’s revoked the first French franchise because the franchise
failed to meet its standards for fast service and cleanliness, even though their restaurants were
highly profitable. This may have delayed its expansion in France.

The restaurants are run by local managers and crews. Owner and managers attend the
Hamburger University near Chicago, or in other places around the world, to learn how to
operate a McDonald’s restaurant and maintain QSC&V. The main campus library and modern
electronic classrooms (which include simultaneous translation systems) are the envy of many
universities. When McDonald’s opened in Moscow, a one-page advertisement resulted in
30,000 inquiries about the jobs; 4000 people were interviewed, and some 300 were hired. The
pay is about 50% higher than the average Soviet salary.

McDonald’s ensures consistent products by controlling every stage of the distribution.

Regional distribution centers purchase products and distribute them to individual restaurants.
The centers will buy from local suppliers if the suppliers can meet detailed specifications.
McDonald’s has had to make some concessions to the available products. For example, it is
difficult to introduce the Idaho potato in Europe because of the special soil requirement.

McDonald’s uses essentially the same competitive strategy in every country: Be first in a
market, and establish your brand as rapidly as possible by advertising very heavily. New
restaurants are opened with a bang. So many people attended the opening of one Tokyo
restaurant that the police closed the street to vehicles. The strategy has helped McDonald’s
develop a strong market share in the fast food market, even though its US competitors and new
local competitors quickly enter the market.

The advertising campaigns are based on local themes and reflect the different
environments. In Japan, where burgers are a snack, McDonald’s competes against
confectioneries and new “fast sushi” restaurants. Many of the charitable causes McDonald’s
supports abroad have been recommended by the local restaurants.
 The business structures take a variety of forms. 66% of the restaurants are frank
franchises. The development licenses are similar to franchising, but they do not require
McDonald’s investments. Joint ventures are used when the understanding of the local
environment is critically important. The McDonald’s Corporation operates about 21% of the
restaurants. McDonald’s has been willing to relinquish the most control to its Far Eastern
operations, where many restaurants are joint ventures with local entrepreneurs, who own 50 %
or more of the restaurant.

European and South American restaurants are generally company-operated or

franchised (although there are many affiliates – joint venture – in France). Like the US
franchises, restaurants abroad are allowed to experiment with their menus. In Japan,
hamburgers are smaller because they are considered a snack. The quarter Pounder didn’t
make much sense to people on metric system, so it’s called a Double Burger. Some German
restaurants serve beer; some French restaurants serve wine. Some Far Eastern McDonald’s
restaurants offer oriental noodles. In Canada, the menu includes cheese, vegetables,
pepperoni, and deluxe pizza; but these new items must not disrupt existing operations.

Despite its success, McDonald’s faces tough competitors such as Burger King, Wendy’s,
Kentucky Fried Chicken, and now also Pizza Hut with its pizza. Moreover, fast food in
reheatable containers is now also sold in supermarkets, delicatessens, convenience stores, and
even gas stations. McDonald’s has done very well, with a great percentage of profits coming
now from international operations. For example, McDonald’s dominates the Japanese market
with 1,860 outlets (half the Japanese market) in 1996 compared to only 43 Burger King
Restaurants. However, the British food conglomerate Grand Metropolitan PLC, which owns
Burger King, has an aggressive strategy for Asia. Although McDonald’s has been in a very
favourable competitive position, by 2001 the customer satisfaction level has been below that of
its competitors Wendy’s and Burger King. In China, KFC is more popular than McDonald’s.
Some observers suggest that McDonald’s expanded too fast and that Burger King and Wendy’s
have tastier meals. It is Mr. Jack Greenberg’s (the McDonald’s top manager) task to change
things around.

In 2006, McDonald's introduced its “Forever Young" brand by redesigning all of their
restaurants, the first major redesign since the 1970s. The new design included the traditional
McDonald's yellow and red colors, but the red will be muted to terra cotta, the yellow will turn
golden far more "sunny look, and olive and sage green will be added. To warm up their look. the
restaurants will have less plastic and more brick and wood, with modern hanging lights to
produce a softer glow. Contemporary art or framed photographs will hang on walls. The new
restaurants will feature three new different areas:
 The "linger" zone will offer armchairs, sofas, and Wi-Fi connections, a concept
introduced by Starbucks.
 The "grab and go" zone will feature tall counters with bar stools for customers who eat
alone; Plasma TVs will offer them news and weather reports.
 The "flexible" zone will be targeted toward families and will have booths featuring fabric
cushions with colorful patterns and flexible seating.

Finally, the company made an effort to offer a wider range of menu options for the
health-conscious consumers. McDonalds is now offering a range of high-quality foods that can
fit into a balanced diet, from salads, wraps, to yogurt-based desserts.

Questions:
1. What opportunities and threats did McDonald’s face? How did it handle them? What
alternatives could it have chosen?

McDonald’s effort in the design and planning of their franchise had a huge part in its
success. Since McDonald’s success in the US, it immediately took to planning on expanding
globally. They took this opportunity and put in a lot of effort into making the expansion a
success. McDonald’s did not take full control of their expansion restaurants. Instead, they share
the restaurants with the local personnel or businesses. This allowed the restaurants to be more
flexible at meeting the needs of their customers. Despite the success, McDonald’s faced
multiple threats such as the varying tastes of locals and allocation or transportation of goods to
the restaurant. They dealt with these threats through localization and marketing strategies. With
altered meals and prices that fit in its residing country, McDonald’s shifted the threat into a
boon.

2. Before McDonald’s entered the European market, few people believed that fast food could be
successful in Europe. Why do you think McDonald’s succeeded? What strategies did it follow?
How did these differ from its strategies in Asia?

McDonald’s succeeded due to excellent planning. They were patient in their expansion
to Europe and their efforts was rewarded. McDonald’s provided a space where families can
enjoy eating at a restaurant together, something that was not common in Europe in the past.
The varying strategies used by McDonald’s differ from country to country through its pricing and
menu. The menu and its ingredients used was carefully selected to satisfy the locals’ tastes.

3. What is McDonald’s basic philosophy? How does it enforce this philosophy and adapt to
different environments?

McDonald’s take pride in its QSC&V. The quality of the restaurant and its food is
observed in its environment and taste. McDonald’s provide great service by catering to a
populace of varying appetite. They obey local laws and help provide job opportunities in its
transportation of ingredients and restaurant work. The restaurant itself has standards which they
strictly follow, thus reinforcing how clean it is. Lastly, McDonald’s put effort in understanding a
countries’ economics through the adjustments of prices and menu to become cost-efficient and
accepted by the locals. The flexibility of their philosophy is evident in how successful they are in
their numerous expansions.

4. Should McDonald’s expand its menus? If you say “no”, then why not? If you say “yes”, what
kinds of products should it add?

It is always important for restaurants to have a dynamic menu. Although McDonald’s do

not completely change their menu, they do organize limited time events to bring in new food to
the table. It is expected that they would have statistics to calculate the success of these events
and probably apply the successful meals as a permanent item on their menu. The products it
adds will have to revolve around the local’s willingness to consume them though.

5. Why is McDonald’s successful in many countries around the world?

McDonald’s is successful because it provides fast and great quality foods at an

affordable price. Their success is heavily due to their planning. They made it possible to create
such menu items with their secured source of ingredients and created a space where varying
people can happily consume them.